It truly has been a year of pain for Fortescue Metals Group Limited (ASX: FMG) shareholders.
Although the broader market has also struggled to gain traction, with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) up just 1% since the beginning of the year, Fortescue's shares have plunged more than 25% in the same time.
That's got to hurt. Especially considering the amount of hype that surrounded the stock towards the end of 2013. At the time, many analysts had it pegged to be one of the best stocks to hold through the coming year as iron ore prices continued to soar sky-high.
Unfortunately, that wasn't to be. The commodity has since dropped more than 30% and is trading at around US$93 a tonne – down from US$135 a tonne in 2013.
Given Fortescue's reliance on iron ore, which is used for steelmaking, its shares have suffered far worse than other stocks with greater diversification like BHP Billiton Limited (ASX: BHP), and Rio Tinto Limited (ASX: RIO), which are instead down 4.6% and 13.3% respectively.
Is now the time to buy the stock?
Of course, we should always strive to buy stocks when they are trading at a significant discount. And Andrew "Twiggy" Forrest has recently increased his stake, indicating his confidence for the future, so surely now would be the perfect time…?
Indeed, the stock would appear cheap – it is trading on a projected P/E ratio of just 4 times and offers a fully franked dividend yield of 4%! And yet I still couldn't justify buying at today's price.
I believe the headwinds facing the industry over the medium-to-long terms are too strong which will act as a further drag on the iron ore price. After all, production growth of the commodity continues to far outpace demand growth from China. This will further impact Fortescue's margins and will affect its ability to repay its enormous debt load.
For investors wanting exposure to the iron ore sector in case the commodity does stage a recovery, BHP Billiton and Rio Tinto are far safer bets and ones I would be much more comfortable holding in my portfolio.